The USD/CAD pair has been one that’s been interesting to follow lately, as we have had such a bullish run by the US dollar. However, they did in fact come to an end, if only temporarily so, during the Monday session. We formed a shooting star on Friday, so it doesn’t surprise me that we broke down a little bit, but I do not look at this is a selling opportunity. After all, I believe that if nothing else we will more than likely find consolidation between the 1.09 level and the 1.12 level. I believe that the 1.10 level is in fact a “focal point”, and that the market will continue to bounce around this general vicinity.
Ultimately, I do believe that this market goes higher, and breaks above the 1.12 level, even though the oil markets look strong. Quite frankly, oil has an exactly help the Canadian dollar recently, so I don’t necessarily believe that this dynamic is going to drive this particular currency market. I believe this has more to do with the fact that the Federal Reserve is in fact tapering off of quantitative easing. This has more to do with the US dollar than oil or the Canadian dollar.
Interest-rate differential should tighten.
The interest-rate differential between the two countries should tighten over the next years, as the bond market will price in the fact that the Federal Reserve is in fact a little less involved than previously. If interest-rate the United States can continue to rise, then that means that the Canadian dollar is without a doubt overpriced. The does, point in time where oil drives the Canadian dollar, but I believe that we’re quite a while from seeing that happen has the world looks to America as the one G-10 currency that is experiencing a tightening of monetary policy. Look to the Canadian dollar against other currencies first to see whether or not the Loonie will start to appreciate against the US dollar. I firmly believe that it will strengthen against almost everybody else before the greenback.
